Perspectives: Listed REITs - Fall edition

September 16, 2024
Kelly Rush, CFA
Chief Executive Officer, Public Real Assets & Chief Investment Officer, Real Estate Securities
Todd Kellenberger, CFA
Client Portfolio Manager, Real Estate Securities
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AT-A-GLANCE

  • Public REITs have benefited from a great rotation within equity markets since the end of June, with U.S. REITs returning 13.2% vs. S&P 500 3.7%.
  • Clear evidence of a growth slowdown and moderating inflation has increased the market’s conviction Fed rate cuts are imminent.
  • REITs in sectors such as senior housing, single-family rental, cold warehouse storage, and wireless towers are a compelling opportunity with visible, defensive cash flows that offer attractive growth under a variety of economic outcomes.
  • Despite recent outperformance, REITs remain historically cheap relative to equities.
  • Public REIT valuations remain attractive versus private real estate funds.

REITs should do well under our expected macro-outcomes of a soft landing or mild recession

There are signs that steep central bank rate hikes are starting to slow the economy. A cooling in labor markets is unmistakable with slower hiring, but layoffs remain tame. This suggests labor markets will weaken but unemployment might not increase significantly.

Clear evidence of a growth slowdown and moderating inflation has increased the market’s conviction the Fed will keep cutting rates. Investor rotation into longer duration, resilient cash flows would be a tailwind for REITs relative to other equities.

Property sectors with lower economic sensitivity and resilient, structurally-driven demand should outperform amidst the prospect of an economic slowdown. For more of our thoughts on the listed REITs preferences, read our full perspective.

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